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Policy
Note on Tax Administration
DEMAND
NO.4.
Tamil
Nadu General Sales Tax
and Other Taxes and Duties Administration
2000-2001
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INTRODUCTION
The Government of Tamil Nadu is in the forefront
of implementing many innovative schemes and resources
have to be found for these schemes. The Commercial
Taxes Department plays a major role in mobilising
these resources. The levy of sales tax was introduced
in Tamil Nadu in the year 1939 and this taxation
system has grown to the extent of contributing more
than 70% of the total revenue of our State. This
Government introduced a long term taxation policy
in the year 1996-97. This policy has been implemented
by the Commercial Taxes Department upholding the
major principles of a good taxation system and ensuring
that -
(1) The system is fair and equitable. (2) It has
no harmful effects on theeconomy, but it promotes
growth. (3) The procedures are simple for both the
tax payers and the administration.
1. It is income elastic (i.e. when the economy grows,
the system should automatically generate more revenues
and it should not become essential for the Government
to keep raising the tax rates).
2. The Commercial Taxes Department administers the
following Acts-
(1) The Tamil Nadu General Sales Tax Act, 1959.
(2) The Tamil Nadu Additional Sales Tax Act, 1970.
(3) The Central Sales Tax Act, 1956. (4) The Tamil
Nadu Entertainments Tax Act, 1939. (5) The Tamil
Nadu Local Authorities Finance Act, 1961. (6) The
Tamil Nadu Betting Tax Act, 1935. (7) The Tamil
Nadu Luxury Tax Act, 1981. (8) The Tamil Nadu Advertisement
Tax Act, 1983. (9) The Tamil Nadu Tax on Entry into
Local Areas Act, 1990.
3. The recommendations of the Sales Tax Reforms
Committee constituted with Thiru C.Thangaraju, I.A.S.
(Retired) as Chairman were considered by the Government
and orders were issued on most of its recommendations.
4. The long term policy on Tax Administration:
The Government have ensured that the essential goods
which all citizens have to buy are not taxed. The
necessities are taxed at the nominal level of 4%.
The goods which are considered luxuries are taxed
high.
5. The main objectives of our taxation policy, followed
by the Government from 1996-97, are:-
(1) Rationalisation of structure of tax rates and
slabs to provide greater transparency of tax rates
and simplicity in assessment and collection; (2)
Introduction of more modern systems and procedures
of taxation; (3) Relief to a large number of small
traders by way of exemptions, compounding and self
assessment procedures; and (4) Reduction of tax
burden on household commodities of day to day use
by the common man.
6. On the basis of the long term taxation policy,
eventhough there was deficit in the Budget, taking
into account the welfare of the public and industrial
growth, the Government gave tax concessions on various
commodities over the past five years and the year-wise
tax concessions accorded so far are as shown below:-
|
1996-1997
|
Rs.
353 Crores
|
| 1997-1998 |
Rs.
143 Crores |
| 1998-1999 |
Rs.
81 Crores |
| 1999-2000 |
Rs.
25 Crores |
| 2000-2001 |
Rs.
76 Crores (approximately) |
| Total |
Rs.
678 Crores |
If the tax concessions
accorded are calculated on a recurring basis, the
total of tax concessions for the five years amounts
to Rs.2,700 crores.
7. A report prepared by a Committee under the Chairmanship
of Dr. Raja Chellaiah, an eminent economist was
studied and debated by a Committee of Finance Ministers.
They arrived at a consensus and made the following
recommendations:-
1.Rationalisation and simplification of tax structure.
2.Harmonisation of rates between States. 3.Gradual
shift to Value Added Tax system.
In India, sales tax has by now become the mainstay
of all the State Governments. But, this source of
income was tending to become stagnant, mainly due
to competitive rate wars indulged in by the various
States in the hope of attracting more business to
their respective State. There was also a lot of
competition among the States for extending tax benefits
to Industry, with a view to attract new industries
and project an investor – friendly image. Thus,
the States competing with one another started offering
an incredible range of sales tax linked incentives,
going up to the waiver of sales tax upto 7 years
or deferral of sales tax up to 14 years. All this
affected the flow of the tax income into the treasury,
crippling the finances of many a State Government.
In these circumstances, on 16.11.99, at a conference
of the Chief Ministers and Finance Ministers of
all States held by the National Institute of Public
Finance & Policy (NIPFP) at New Delhi, it was unanimously
decided that the rate wars and incentive wars should
stop and that uniform floor rates of tax below which
no State would go, should be implemented, in all
the States. They decided to do away with all the
sales tax linked incentives to industries as well.
With the implementation of this policy, it is expected
that the State Governments would be able to mobilise
sufficient resources in a fair and equitable way,
adopting policies which would promote growth of
the economy and employment. Concluding the discussion,
the Union Finance Minister announced the consensus
on the course of action to be taken, as below:
Implementation of uniform floor rates of sales tax
by States and Union Territories- It was decided
that all the States and Union Territories will implement
uniform floor rates with effect from 1.1.2000.
Phasing out of sales tax based incentive schemes
including revised definition of backward areas eligible
for this scheme: It was unanimously resolved that
the offer or grant of any incentive based on sales
tax for industries shall be discontinued from 1.1.2000
by all States. Finalisation of the modalities and
time frame for introduction of Value Added Tax (VAT)
by State Governments:- It was decided that VAT would
be implemented by all the States and Union Territories
from 1.4.2001. The interim period shall be used
for preparatory steps, training including computerisation
and publicity. The Government of India will extend
financial as well as technical assistance for these
activities as may be needed (through NIPFP). The
Government of India will also compensate the States
if they lose revenue in the initial period by the
introduction of Value Added Tax.
Rationalisation of Central Sales Tax- It was decided
that since CST needs to be studied further as it
is linked with broadening of tax base of States
like service tax, consignment tax and declared goods,
the NIPFP will be asked to study further the issue.
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